Mortgage Rates: How Do We Keep Them Low?

Janus AG Finance is a seller servicer for Farmer Mac (Federal Agricultural Mortgage Corporation, ticker symbol AGM). Similar to FannieMae, FreddieMac, or even the US Postal Service (USPS), Farmer Mac is a government-sponsored entity (GSEs).

These are formed by the US government to offer essential services to the public at a minimum price instead of returning a high profit to their stockholders like other publicly traded companies. Because of this, they operate under strict guidelines and controls by Congress. Take, for instance, the USPS. It carries mail at a relatively low price to the customer to provide an essential service to the public.

FAMC was created by Congress in 1988 to offer agricultural real estate loans to qualified farmer borrowers at a reasonable price. Unlike SBA, USDA, and other government entities, FAMC does not offer loans as a bailout to farmers who have lost money but rather provides a floor interest rate to qualified borrowers who have proven to be good businessmen and maintain excellent credit.

FarmerMac loans are not for everyone.  We only loan to the top tier of borrowers that contact us.  Because we must document strong income history and good debt coverage ratios some borrowers may not qualify in cases where uncontrollable factors such as drought, frost, or hail may have caused losses in recent years.  However for those borrowers who have demonstrated good income history and good credit management, Janus Ag Finance offers a preferable loan program at very competitive interest rates.

How Do We Secure Low Loan Rates?

Our loans are funded by the sale of mortgage-backed securities to Wall Street investors. The risk profile is also very low thanks to:

  • Our demanding underwriting standards.
  • Our 90-day delinquency rate on our loan portfolio has remained below one-half of one percent for many years. 
  • Since our maximum loan is not more than 70% of the property value, even the loans that go into foreclosure are recovered at par value.
  • We only loan to the top tier of farmers across the country.

Selling Our Loans

At Janus Ag Finance, we have a commitment from FAMC to purchase our loans before we fund them. FAMC table funds the loans at closing which eliminates the extra cost of obtaining table funding from a second party.  A few days after closing, the loan is sold to FAMC.

FAMC, in turn, combines our loan with many other loans into what is called a bundle of real estate-backed securities and which are sold to Wall Street investors. Because the investors know the risk of default on our loans is very low, they are willing to purchase our bundles at relatively low mortgage interest rates in return. Those low mortgage rates are passed on to our qualified farm clients.

Let’s Look At A Summary:

Our business model can be summarized into a few simple steps, which you can review for better comprehension:

  1. Farmers who are excellent managers and can prove with their tax returns they have been successful apply for a loan.
  2. Janus Ag Finance underwrites the loan to very demanding loan ratios, which require strong cash flow, good credit history, and excellent ag real estate collateral at no more than 70% LTV.
  3. FAMC reviews the borrower file and either rejects or issues a loan commitment.
  4. Janus Ag Finance and our affiliate bank prepares the mortgage documents and presents all the closing document to the title company at closing.
  5. The FAMC sells the loan to Wall Street investors as per the underwriting commitment.
  6. Janus Ag Finance and our affiliate bank collects the payments and services the borrowers for the life of the loan. We handle partial releases, late payments, refinances to lower rates when the market offers the opportunity, and all other issues that may arise.

This business model allows FAMC to fund billions of dollars of loans with a relatively small paid staff, thus keeping their overhead very low and enabling it to offer rates to partners, like Janus Ag Finance, with minimal markup from the coupon rate on the mortgage-backed securities.

The system is very efficient and rewards top farmland owners access to money at the lowest possible mortgage rates! Get your loans with us!